re: telstra --- the reason it's going much lower.
Nickoo,
Good theoretical summary. Your efforts on this are appreciated, even if we disagree on other matters.
What will it take for Telstra to yield 7%ff?
My guess would be a share price nearing $3.50 assuming the current dividend stream (no specials). Otherwise, it would require an increase in the 1/2 yearly dividend payment to 14c, with a share price approximating $4.00.
But, in the coming 12 -18 months, Telstra has some intensive capital management programmes that it will need to attend to, including: 1) FoxTel digitisation (Telstra contributes 50%); 2) the Optus subsidies shortfall (Telstra contributes 50%, unless FoxTel is able to function on a non-recourse basis); 3) broadband (still in need of upgrade /deployment in many areas); 4) 3G (especially if the HTA 3G service establishes an early competitive advantage, or if Optus moves into mid-year 3G trials), as Telstra's enhanced CDMA rollout is little more than window dressing; 5) financing the international operations of Telstra Saturn Clear (up to $1.0b still required here, including AUN's part-share), and of Telstra International /PCCW in Hong Kong (already there is some doubt as to the continuing financial solvency of Reach - on this Telstra and /or the Banks may need to dip back into their pockets); and 6) handset subsidies (particularly if competition in mobiles starts to re-ignite).
Simply put, Telstra may still have the cash, but Telstra's forward looking commitments for the next 12 -18m already mean that its available spare cash may be about to be pre-committed elsewhere.
Telstra's risk of increasing its dividend in the 1/2 year result is such that what is paid out now may well have to be borrowed back in 3 -6 months time in order to address growing deficiencies /demands elsewhere in the business.
I, therefore, see flat-lining growth /revenue, profits that have already peaked, margin compression, intensifying competition, and a restless workforce.
In the coming 12 months, therefore, Telstra seriously needs to embrace outsourcing of its network operations (across its myriad of platforms), as well as rationalisation of those platforms to bring about a simpler, easier to operate Telstra.
If not, then Telstra's share price could still fall down to your mooted levels, but in those circumstances, it's dividend yield would not be 7%, but rather closer to 4% with the annualised dividend being slashed to ~14c.
If so, however, I see Telstra's share price returning to the $5.20 mark by early next year.
My immediate predictions for Telstra's share price: 1) to bottom out @$3.85; 2) to rise to $4.30 -4.40 if either Ziggy or Mansfield departs; 3) to rise to $4.40 if a special dividend is announced; 4) mid-year (ie: 30 June) closing price of $4.57; 5) year end closing price of $4.85; and 6) 1H04 profit announcement share price of $5.20, coupled with the outsourcing initiatives being implemented into practice.
